Could Tofacitinib Save Pfizer?

| About: Pfizer Inc. (PFE)
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In previous report Lipitor's expiration: how much will it impact Pfizer's revenue and earnings?, we discussed how Pfizer's (NYSE:PFE) declining drug sales for key products (e.g. Lipitor) would impact its revenues for 2012 and how the newly approved drugs would eventually contribute to future revenue growth. In this section, we will analyze Pfizer's drug pipeline and how it will impact Pfizer's revenue going forward. In particular, the upcoming FDA decision on Tofacitinib for rheumatoid arthritis (November 21, 2012) is extremely crucial for Pfizer. If approved, Tofacitinib could become Pfizer's next "Lipitor".

Section 2: drug pipeline and new drug applications awaiting FDA action

In 2011 and 2012, PFE filed several New Drug Applications (NDA) with the FDA, the EU, and Japan's agencies. The decisions for approval are expected in late 2012 to early 2013. Below, we discuss each application and assess the likelihood of FDA approval, as well as the contribution of these new drugs to PFE's revenue.

Tofacitinib is a JAK kinase inhibitor developed by Pfizer for the treatment of autoimmune diseases, including rheumatoid arthritis (NYSE:RA). It is currently under review for the treatment of moderate-to-severe active RA by several regulatory agencies around the world, including in the United States, Europe and Japan. The anticipated Prescription Drug User Fee Act (PDUFA) date is November 21, 2012. If approved, tofacitinib would be the first new oral disease-modifying antirheumatic drug (or DMARD) for RA in more than 10 years.

Pfizer will present Tofacinib's phase 3 data on RA in the upcoming American College of Rheumatology (ACR) 2012 Annual Meeting to be held on November 9 to14. Pfizer will present long-term safety and efficacy data for the 48 month trials. Based on the data summarized in its news release (Tofacitinib RA phase 3 data Sept-2012), Tofacitinib monotherapy was shown to be superior to methotrexate alone, with significant reductions in structural damage and signs and symptoms of RA, and meeting both primary and secondary endpoints through 24 months.

The adverse effects of tofacitinib include serious infections, including tuberculosis and herpes zoster; malignancies, including lymphoma; gastrointestinal perforations; decreased neutrophil and lymphocyte counts; and lipid elevations. The side effect profile is very similar to those associated with anti-TNF therapies (e.g. Enbrel, Remicade, Humira). It remains to be seen if the frequencies and percentage of adverse events of Tofacitinib are comparable or inferior to the anti-TNF therapies.

In addition, as the first-in-class JAK inhibitor, Tofacitinib has great potential to expand to other autoimmune diseases. In fact, Pfizer has lined up clinical trials for Tofacitinib in other autoimmune diseases, including psoriasis, psoriatic arthritis, ulcerative colitis, Crohn's disease, and ankylosing spondylitis (PFE drug pipeline).

We assign an 80% probability that this drug will receive regulatory approval, and project its sales to be $720M in 2013, eventually reaching over $2B in 2016, assuming it is also approved for other indications. As such, it is crucial that Tofacitinib receive regulatory approval for its first indication in RA, as this drug could bring in tens of billion dollars of revenue for Pfizer over the coming decade.

Bosutinib is an inhibitor of Abl and Src kinases. Pfizer filed a NDA for Bosutinib for the treatment of chronic myelogeneous leukemia. In September, the FDA approved Bosutinib as a 3rd line of treatment for CML patients who have previously been treated with Gleevec and one other tyrosine kinase inhibitor (Bosutinib for CML received FDA approval Sept 2012). As a 3rd line therapy, Bosutinib's sales will be limited, especially in the crowded CML field. We project its sales to be $300M in 2013, eventually reaching approximately $500M in 2016.

In general, neurological diseases are a difficult area to tackle, and Pfizer's neuroscience drug development has recently experienced several setbacks. For example, Bapineuzumab is a beta-amyloid antibody co-developed by Johnson and Johnson (NYSE:JNJ) for the treatment of Alzheimer's, which failed to meet primary clinical endpoints in Phase 3 clinical trials. As a result, JNJ discontinued the Phase 3 development of Bapineuzumab in mild-to-moderate Alzheimer's disease (JNJ discontinues Alzheimer drug trials). The aggregated failures in beta-amyloid antibodies trials including those conducted by Eli Lilly (NYSE:LLY) suggest that the beta-amyloid theory for Alzheimer's needs to be revisited.

Pfizer also obtained a neurological drug candidate, Tafamidis, from its acquisition of FoldRx Pharmaceuticals, Inc. in 2010. Tafamidis (Vyndaqel) is a first-in-class oral therapy for the treatment of transthyretin familial amyloid polyneuropathy (TTR-FAP), a progressively fatal genetic neurodegenerative disease. While the drug was approved in the EU in November 2011, the NDA submitted to the FDA did not receive approval as expected. The FDA issued a Complete Response Letter (NYSE:CRL) in June 2012 requesting the completion of a second efficacy study to establish substantial evidence of effectiveness prior to an approval (FDA issued CRL for tafamidis June-2012). An earlier release from the FDA Advisory Committee also stated that the data did not find substantial evidence of efficacy at a clinical endpoint (Tafamidis FDA advisory committee vote May-2012). As a result, Tafamidis is unlikely to receive FDA approval anytime soon. We assign a 40% probability of approval and estimate that its impact on Pfizer's revenues before 2014 will be minimal.

Taken together, Pfizer's recently approved drugs (Inlyta, Xalkori) and its new drugs awaiting FDA approval are estimated to generate aggregate revenues of $700M, $2.2B, $3.2B, $4.3B, and $5.3B from 2012 to 2016, respectively. These new products will have a more meaningful impact on revenue growth after 2013. Among the new drugs, Xalkori and Tofacitinib have the potential to become blockbuster drugs for Pfizer.

In the follow-up report, we will integrate estimated revenues from existing drugs and new drugs into financial analysis and stock valuation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.